THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

CAFFERTY: Sheryl writes: "Sarah Palin is Dick Cheney with lipstick." If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile and look for yours there among hundreds of others -- Wolf.

BLITZER: Jack, thanks very much.

And to our viewers, you're in THE SITUATION ROOM.

Happening now, John McCain -- he goes from rebel to Republican nominee.

Can he reshape the current establishment party in his own image and win over voters eager for change?

A lot is certainly on the line as the clock ticks down to his big acceptance speech tonight.

And is Sarah Palin already outshining the man at the top of the ticket?

A rousing speech fires up the Republican faithful. But the Obama campaign is already firing right back.

And Tropical Storm Hannah heading toward the East Coast right now. But as bad as it gets, it may only be a warm-up act for a monster storm named Ike.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

In just a few hours, John McCain takes the podium here in St. Paul to outline his vision of where he wants to take the country. Senator McCain has rebuilt his base among skeptical conservatives by picking an instantly popular running mate from the GOP's right, the Alaska governor, Sarah Palin. Now, he may try to rebuild the image of Republicans, hoping some of his "maverick" style can rub off.

Meantime, they've been rebuilding the stage here at the Convention Center.

Ed Henry is watching what's going on -- Ed, what does Senator McCain have to do tonight, focusing in also -- focusing on this construction?

What's it been all about?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, Wolf, he has to rise to the occasion because Sarah Palin certainly set some high expectations for him tonight. And she proved just like Barack Obama, she can be pretty effective with a teleprompter.

That's not John McCain's forte. So the campaign has made some adjustments to the stage right here.

(BEGIN VIDEOTAPE)

HENRY (voice-over): John McCain on the catwalk, prepping for his big speech accepting the Republican nomination for president. After McCain strutted across the main stage Wednesday evening with Sarah Palin, convention officials worked all night to craft this catwalk so McCain can speak more in the town hall style format he loves and have a more intimate connection with the crowd at this hockey arena.

MARIA CINO, CEO, 2008 REPUBLICAN NATIONAL CONVENTION: We decided to build out even further. It's 10 feet center ice, for those of you who are hockey fans. Center ice. And the senator will then walk out onto the stage and be even closer than we already had him.

HENRY: When McCain is not in his comfort zone, he looks stilted and is prone to mistakes.

SEN. JOHN MCCAIN (R), PRESUMPTIVE NOMINEE: I will use the veto as needed. I will veto every single beer -- bill with earmarks.

HENRY: When McCain is finished, more than 200,000 balloons will drop from the rafters. As part of the stagecraft, McCain brought in the man who orchestrates the ball drop and confetti celebration at Times Square in New York City. He says the grand finale at the convention is much more nerve-wracking.

TREB HEINING, CEO, TREB INC.: It can't be, you know, a minute late or a minute early or whatever. It has to happen right on cue. So, a tremendous amount of stress.

(END VIDEO TAPE)

HENRY: Now there's also another adjustment, which is that there are 44 chairs for delegates that have been added right around the stage. And the whole thing has been rearranged. There's going to be delegates from Ohio, a key swing state. And we're also told my McCain officials there may be some surprise VIP guests, as well, sitting here on the stage.

And one other thing. They have more than 300 pounds of confetti and the confetti has photos of John McCain, as well as Cindy McCain. So that's one little addition that they have -- more than 300 pounds of that, in addition to more than 200,000 balloons. It's going to be a big show, obviously -- Wolf.

BLITZER: Yes. And those balloons will be coming down from the sky right after his speech.

All right. Thanks very much, Ed.

Ed's with us as we watch this night.

The Republican right has found a shining new star and in some quarters, she's overshadowing John McCain. Sarah Palin is the topic of the day on talk radio.

Carol Costello is joining us now -- Carol, what are they staying?

COSTELLO: Well, they're not saying much about John McCain, that's for sure. But about Sarah Palin, Rush Limbaugh says she makes his heart crazy and his mind nuts.

It makes you wonder -- can a hockey mom with a great personal story trump a war hero.

COSTELLO: Talker Rush Limbaugh called her fabulous, a once in a lifetime politician who can spin a line.

PALIN: That luxury jet was over the top.

(BEGIN VIDEO CLIP FROM "THE RUSH LIMBAUGH SHOW")

RUSH LIMBAUGH, HOST: She sold the state jet.

(END VIDEO CLIP)

PALIN: I put it on eBay.

(BEGIN VIDEO CLIP FROM "THE RUSH LIMBAUGH SHOW")

LIMBAUGH: I put it on eBay.

(LAUGHTER)

LIMBAUGH: This lady has turned it all around. And John McBrilliant pulls this off with the gutsy choice of Sarah Palin.

(END VIDEO CLIP)

COSTELLO: This from a guy who once urged Republicans to vote for Hillary Clinton over John McCain. We'll say it again -- just check out the morning papers -- Sarah Palin is a rock star.

LARRY ELDER, "LARRY ELDER RADIO SHOW": I sort of feel a little bad for John McCain. He's not a great speechifier. And given how high a decibel level the convention rose when Sarah Palin spoke, it's going to be hard for John McCain to deal with that.

COSTELLO: And that makes some Republicans nervous.

Will this woman, dubbed a maverick, with her youth, her charm, her family and conservative agenda overshadow the original maverick?

MCCAIN: My friends...

COSTELLO: You know, the guy who's running for president?

JEANNE CUMMINGS, POLITICO.COM: The risk with choosing someone who's fresh and new is that they will be the exciting element. They will be the person that's most intriguing to those watching the event. And so John McCain does have to follow her and he does have to perform well and grab center stage back.

COSTELLO: Cummings says McCain's lack of star power was apparent when he took the stage after Palin's speech. He seemed overwhelmed in the presence of so many Palins. She says the only answer, McCain and Palin should limit joint appearances and he should step it up.

Conservatives say they're not worried, though.

ELDER: Will she overshadow him?

If she does, is that a bad thing?

Most people are going to vote for a president based upon the president, not on number two.

(END VIDEO TAPE)

COSTELLO: It is interesting, though. Conservative talkers were very vocal that Palin's teleprompter was rolling through her speech too fast and she had to ad-lib, as if to say, see, our rock star can talk off the cuff, unlike their rock star -- Wolf.

BLITZER: All right, Carol.

Thanks very much.

Gloria Borger is here with us. She didn't really stress the social issues last night...

GLORIA BORGER, SENIOR POLITICAL ANALYST: No.

BLITZER: ...her opposition to abortion or gay rights or gun control, because the right -- the base, if you will, they really already are around her. She was reaching out to more moderates out there, especially women, who will help determine this election.

BORGER: Well, she didn't mention it, really, because she didn't need to. And on some of those issues, as you well know, Wolf, she's far to the right of John McCain. For example, she opposes stem cell research. He's for stem cell research.

And so I think that she didn't want to accentuate the things that, in fact, they might disagree on.

The base already knows her. The base loves her. She was trying to play up her credentials on energy policy, which -- with which she has a lot of familiarity as governor of Alaska, and also as a maverick and a reformer -- someone who's willing to take on the old boy network, which is exactly why John McCain picked her.

BLITZER: All right. Just to be precise, she opposes embryonic stem cell research.

BORGER: Embryonic stem cell research.

BLITZER: Embryonic stem cell research.

BORGER: Yes. Exactly.

BLITZER: And he supports embryonic stem cell research.

BORGER: Exactly.

BLITZER: All right. I just wanted to be precise on that point.

BORGER: Exactly. Very good.

BLITZER: Gloria, don't go away.

Let's go to Jack Cafferty right now.

He's got The Cafferty File -- Jack.

CAFFERTY: It seems like a long time ago, January 3rd 2008. That night, in the dead of winter, the Earth moved in Iowa. In freezing temperatures, Iowans gathered all across the state for their caucuses. Nobody was looking for any big surprises. Hillary Clinton figured she'd win it in a walk. She didn't even bother to campaign there much.

But a political unknown had worked his tail off in the Hawkeye State. And when the votes were counted, an improbable journey began.

Barack Obama was on his way, given a huge tail wind by a state that's 95 percent white. In fact, that night on CNN, I remarked the only place whiter than Iowa is the North Pole.

And Iowans' love for this man from Illinois has remained as rock solid as their Midwestern principles. Once again, Iowa, at the forefront in this presidential campaign. In the latest CNN/"Time" magazine/Opinion Research Corporation poll, which was out yesterday, Obama has surged to a commanding 15-point lead in Iowa over John McCain -- 55-40.

Iowa was rated a toss-up until yesterday. And with the way the electoral map is shaping up, these new numbers are huge for Obama.

On CNN's electoral map, both Iowa and Minnesota have now been changed from toss-up to leaning Obama -- putting the most unlikely candidate for president in our nation's history tantalizingly close to the magic 270 electoral votes needed for election.

Of course, there's still eight weeks to go. Lots can change. But make no mistake, if Barack Obama goes all the way, white people in Iowa will be a big part of the reason he does.

Here's the question -- how important is it that Iowa, a state that's 95 percent white, remains firmly behind Barack Obama?

Go to CNN.com/caffertyfile and you can post a comment on my blog -- Wolf.

BLITZER: Jack, thanks very much.

And remember, we're standing by to hear live from Michelle Obama. She's out there campaigning today for her husband. We'll see if she responds to the attacks from Governor Palin last night. We're going to have live coverage. Michelle Obama coming up here.

And a new forecast for a dangerous storm -- Hurricane Ike is heading toward the United States right now. Ike was a category four. It's getting -- is it getting stronger and where could it hit next?

Our severe weather expert, Chad Myers, is standing by.

Also, take a look at this -- the lingering impact of Hurricane Gustav. Thousands of people may not have power for weeks.

Plus, for the first time since World War II, a president or vice president may be sending a child off to war. What those VIP warriors can expect.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's a new update just coming out from the National Hurricane Center on Hurricane Ike, at last report a very, very dangerous category four storm, along with Tropical Storm Hannah. Both closing in on the U.S. coast right now. Hannah coming in before Ike.

Let's go to our severe weather expert, Chad Myers.

He's in the CNN Hurricane Headquarters.

What's going on -- Chad?

Give us the latest.

CHAD MYERS, CNN METEOROLOGIST: Hannah is going to make a run at North Carolina and South Carolina, almost right there op the border. That happens tomorrow night, after midnight, probably 2:00 a.m. for a landfall, but as a tropical storm.

That big thing out there is Ike. That will make landfall somewhere as a big time hurricane.

There's Hannah, kind of disorganized right now because there's dry air wrapping its way into the storm. That's good news. The dry air kills it. Hurricanes want moist air. Dry air just spins it and basically cuts it off from strengthening. So, a 70 mile per hour storm, 2:00 a.m. tomorrow. So what is that, you know, like 29, 30 hours from now. That's Hannah. It could be a little bit left, it could be a little bit right.

If it's a little bit left, it's quicker, because it's a shorter distance to get to Myrtle Beach. You get the idea. It's still tomorrow night.

But this is the storm that we have to worry about. This is Ike, a category four, 135 miles per hour. It was 140 earlier, so it's down five miles per hour. That's because there's going to be a little bit of a shift. There's going to be a little bit of a wind coming in from the north and the northeast that's going to push it to the south. Then that wind is going to stop and it's going to turn back up toward the northwest. And that right there, boy, that's a terrible cone, no matter where you live, from Cuba all the way up into the Carolinas. As a category three, very dangerous -- the third major hurricane of this season already -- Wolf.

BLITZER: So, we have a lot of viewers in Miami and Fort Lauderdale and West Palm Beach.

How worried should they be right now?

MYERS: Well, you know, probably not worried yet. We're still five days away. This cone distance is 500 miles either side of the middle. So it could be way up here. It could be well into Cuba, killing itself in the mountains of Cuba, by Monday into Tuesday.

But if you're not watching the TV on Sunday and Monday in South Florida, you're doing yourself a disservice. You need to know. Maybe you need to get out of there. And there may be a mass evacuation in Florida somewhere or maybe through the Carolinas. You have to get out of the way of a category three, no matter what you do.

BLITZER: And we're thinking it could be Tuesday afternoon or so when this hits Florida?

MYERS: Yes. You know, Wolf, that's 120 hours out and sometimes you can't forecast these things 12 hours out -- or at least we do our best. But the best case scenario, this thing misses the U.S. and turns to the right and gets to the ocean. Probably a 10 percent chance of that. Maybe a 15 percent chance of it hitting Cuba. But somewhere in the middle of this cone is South Florida, at 125 miles per hour on Tuesday.

BLITZER: All right.

Thanks for that update, Chad.

Meanwhile, 829,000 homes are still without power three days after Hurricane Gustav roared through Louisiana. And in some areas, electricity could be weeks away.

Susan Roesgen is joining us now live from New Orleans.

What's going on?

Why so long -- Susan?

SUSAN ROESGEN, GULF COAST CORRESPONDENT: You know, apparently the power company's trucks are just out there. They just didn't get in here soon enough. And in Baton Rouge, Wolf, nearly every power company customer lost power.

Now, we're here in New Orleans, where people are just now today being allowed to come home. And some of them are in for a big shock.

Can you imagine, Wolf, coming home and finding this?

This is a house under renovation. You can see that the green paint is still fresh. And it just didn't have the interior support to withstand the wind of Hurricane Gustav.

But the deal is that Hurricane Gustav really just sort of grazed New Orleans. So people here in New Orleans are absolutely furious, because they want to know why, if this hurricane was not so bad, do they not have power?

No lights, no air conditioning now. Long lines here for ice, for generators, for the gasoline to power the generators. And even Louisiana Governor Bobby Jindal has come out a couple of times in the past couple of days and said step it up. He wants the power companies to get in there and restore the power.

As far as this house goes, well, she's sort of like New Orleans -- she's battered and bruised, but a survivor. The owner says she can be pulled back up -- Wolf.

BLITZER: Susan Roesgen watching heartbreaking story for us, as well.

Thanks very much.

Meanwhile, the Mayor of a major American city has resigned in disgrace and he's facing jail time. Details of the felonies to which he has now pleading guilty. That's coming up. Plus, subtle and not so subtle digs at Barack Obama from the GOP podium here in St. Paul -- his experience, his work as a community organizer. His senior adviser, Robert Gibbs, is here to respond.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

COSTELLO: I'm Carol Costello in New York.

We'll return to Wolf at the Republican National Convention in St. Paul, but first let's take a look at other stories incoming into THE SITUATION ROOM right now.

It began with a sex scandal in Detroit. Now a city mayor is in big trouble with the law and it is not ending well for him.

CNN's Mary Snow is following the case.

It's just sad for the whole City of Detroit, actually.

MARY SNOW, CNN CORRESPONDENT: And that's what everyone in Detroit is saying today. It's a very sad chapter coming to a close.

Kwame Kilpatrick has resigned as mayor of Detroit. This after creating a political firestorm for months. Today, he ended his defiance to stay in office when he pled guilty to two felony charges.

(BEGIN VIDEOTAPE)

SNOW (voice-over): Detroit Mayor Kwame Kilpatrick appeared before a judge and agreed to a plea deal that will land him in jail and force him to resign from his job.

JUDGE DAVID GRONER, WAYNE COUNTY CIRCUIT COURT: You're also giving up the right to be presumed innocent until proven guilty.

Do you understand that?

KWAME KILPATRICK, FORMER DETROIT MAYOR: I think I gave that up a long time ago, your honor, yes.

SNOW: Kilpatrick pled guilty to two charges of obstruction of justice.

KILPATRICK: I lied under oath in the case of "Gary Brown and Harold Nelthrope v. The City of Detroit."

SNOW: And he pled no contest to a separate charge of assaulting an officer.

For months, Kilpatrick, a second term Democrat, had resisted growing pressure to resign. On Wednesday, the state's governor began a hearing to determine whether Kilpatrick should be removed from his job.

GOV. JENNIFER GRANHOLM (D), MICHIGAN: Today, this sad but historic story is coming to an end. It's very important for us as a state and as a city to turn this page together.

SNOW: Part of that story exploded into the headlines in January, when the "Detroit Free Press" published steamy text messages between Kilpatrick and a former aide. It contradicted what they'd both said under oath about their relationship while questioned in a civil lawsuit stemming from the firing of a police officer.

Perjury charges were filed and other legal problems followed. Kilpatrick did a stint in jail and during the summer, he was charged with assaulting a police officer. He was sentenced to four months in prison, five years probation, a $1 million fine and restitution, and must turn over his state pension to the city.

(END VIDEO TAPE)

SNOW: Kilpatrick also cannot run for elected office for five years. He loses his law license. His resignation takes effect September 18th. His sentencing will take place next month.

For now, the president of Detroit's city council, Ken Cockrel, takes over until a special election is held.

COSTELLO: And according to the "Detroit Free Press," he's supposed to address the city at 7:00 tonight.

SNOW: Later tonight. Right. And the city council president is saying today that he's still the mayor, that this is a period right now of transition -- a very difficult one, but he -- Kwame Kilpatrick still remains the mayor.

COSTELLO: Not for much longer.

SNOW: No.

COSTELLO: Thank you, Mary.

It is a devastating day for investors. The Dow plunged more than 344 points today amid disappointing economic news. The nation's major retailers reported that shoppers curtailed their spending last month because of higher gas and food prices. Also, the Labor Department said new applications for unemployment insurance rose by 15,000 last week from the previous week. The numbers released today were a sign that despite some upbeat reports over the past month, the economy remains deeply troubled.

Vice President Dick Cheney is in Kiev, Ukraine after a brief visit to Georgia's capital city. In Georgia, he denounced what he called Russia's unilateral attempt to redraw the U.S.-Allied borders by force. And he said the U.S. will help Georgia join NATO. Cheney is addressing concerns that Russia could go after Ukraine next. The strategically located country has pipelines that carry Russian gas to European consumers. Vice presidential candidate Sarah Palin could soon have a son in Iraq.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: I'm just one of many moms who will say an extra prayer each night for our sons and daughters going into harm's way.

(END VIDEO CLIP)

COSTELLO: She is not alone.

John McCain and Democrat Joe Biden all with children potentially going to Iraq. Plus, Rudy Giuliani on the attack at the Republican Convention. Now he's here in THE SITUATION ROOM sitting down with Wolf.

(COMMERCIAL BREAK)

BLITZER: We're about to hear live from Barack Obama.

He's in Lancaster, Pennsylvania.

And then we'll be hearing from Michelle Obama. She's in Albuquerque, New Mexico -- two battleground states.

We're going to hear how they respond to what the Republicans are saying here at their convention.

Our coverage continues right after this.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, they'll be serving their country while their parents campaign to run it.

Will the candidates' kids get special treatment in the military?

Stand by.

And prime time pressure for John McCain -- is he ready for his close up tonight at this convention?

The speech so many will be watching only a few hours away.

And Barack Obama says enough of the slash and burn politics. He's fighting back after the McCain campaign takes him on over the issue of experience.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM. John McCain and Sarah Palin have one thing in common with Democratic rival Joe Biden -- They all have children who are likely to soon end up serving with the U.S. military in Iraq.

Can these VIP warriors expect any special treatment?

Let's go to our senior Pentagon correspondent, Jamie McIntyre.

He's looking into the story for us -- Jamie, what are you finding out?

JAMIE MCINTYRE, CNN CORRESPONDENT: Wolf, the whole thing conjures up this almost comical image of a soldier in battle with a bunch of men in black, secret service agents whispering into their leaves trying to protect them, but the army says it's nothing like that, whether it's the sons or daughters of the highest officials of the united states, they're treated the same as any other soldier.

(BEGIN VIDEOTAPE)

GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: I'm just one of many moms who will say an extra prayer each night for our sons and daughters going into harm's way.

MCINTYRE: Army officials tell CNN an extra prayer is about the only extra the 19-year-old can expect as the son of the republican's VP nominee. For security reasons, the army won't say exactly when his Alaska National Guard unit deploys to Iraq. But mom is pretty sure it's neck week.

PLAIN: One week from tomorrow, September 11th, he'll deploy to Iraq in the service of his country.

MCINTYRE: Under law, the secret service is not required to protect the children of presidential and vice presidential candidates. But it does when they are young. When VIPs volunteer for the U.S. military, they are just like any other GI, says the pentagon. Take John McCain's sons 19-year-old Jimmy just back from Iraq, or 21-year- old Jack who could go next. Senator McCain makes a point of not talking about them. His campaign makes a point that McCain never took special treatment when the Viet Cong offered to release him early because his father was a four-star admiral. In contrast, when Britain's Prince Harry was dispatched to Afghanistan, the international news media was sworn to secrecy. The argument being as third in line for the throne, he would have a bull's-eye on his back.

PRINCE HARRY: I need to keep my face slightly covered on the slight chance I will get recognized and put others in danger.

MCINTYRE: Once the news leaked, Harry was called home. And should the democrats win, there will also be a veep's son in the war zone. Delaware Attorney General Boe Biden, son of Joe Biden, will spend a year in Iraq with his guard unit. But it sounds like he won't be on the front lines.

NATHAN BRIGHT, DELAWARE NATIONAL GUARD: Captain Biden is part of the administrative staff that will go with him and he'll be acting as a trial lawyer.

(END VIDEOTAPE)

MCINTYRE: The reality is, if your father is the president or vice president, along with some teasing, people will be looking out for you. No commander wants to be the one to call the commander in chief to give them the worst news a parent can get. If it turns out the commander believes that a celebrity soldier in the ranks is posing a danger to others, which you're likely to see is a very quiet reassignment.

BLITZER: Thanks very much, Jamie McIntyre. Interesting information for all of us to ponder. With all the attacks back and forth among the presidential candidates, and vice presidential candidates, can anyone claim the high ground in this campaign. Let's discuss with our two CNN political contributors. The democratic strategist, James Carville, and the radio talk show host Bill Bennett. They're joining us right now.

James, I'm going to play a little clip for you first from Sarah Palin last month, going after Senator Obama. Listen to this.

(BEGIN VIDEO CLIP)

PALIN: We tend to prefer candidates who don't talk about us in one way in Scranton and another way in San Francisco. As for my running mate, you can be certain that wherever he goes, and whoever is listening, John McCain is the same man.

(END VIDEO CLIP)

BLITZER: James, that was last night obviously here on the convention floor. It was just one of several pretty sharp attacks mocking the democratic presidential candidate. What do you think about this strategy?

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Well, first of all, it's to be expected. Today we were treated to a 341-point plunge in the Dow. Tomorrow we'll be treated to some unemployment numbers that are going to be anything but pretty. The republicans need to acknowledge the country is in the midst of an economic slowdown. We have a health care crisis in this country.

Having said all of that, I think the public can figure this out. You know, they're going to take a shot at the speeches. I expect the democrats took some shots at the republicans during our speeches. One thing that this convention has not done, it has not talked about what it's going to do about this disaster for the economy we're in. And the one thing the republicans do have experience at, that's economic disaster. The American people are feeling it right now.

BLITZER: The only thing you did hear from the republicans, though, I listened to all these speeches, is the democrats will raise your taxes, we'll cut your taxes. But there were no real specifics on health care or retirement or some of the other critical issues affecting the American people. BILL BENNETT, NATIONAL RADIO TALK HOST: You're asking and James asked, a conservative or a republican acknowledge a economic slowdown. I will. There are serious problems. On the health care last year, saw the increase number of people getting health care. There are serious problems to be addressed. I think that is the next thing to address, Wolf and James.

BLITZER: Do you expect McCain will do that tonight?

BENNETT: I think he'll talk about it some. But we have 60 days before this election. I hope John McCain indicates the general outlines of an economic recovery plan. He already has some on the stump. I hope there are a series of very specific layouts of economic recovery and other plans. But a convention obviously is to motivate the base, introduce the candidates again. In Sarah Palin's case, to introduce her really for the first time given all that flurry about it. We'll get to it. We'll have specific proposals which we will debate.

BLITZER: To listen to the speakers here last night, you would think that the democrats were in control of Washington. The republicans have controlled Washington for the last eight years in the white house. And the executive branch of the U.S. government. 12 of the last 14 years in the legislative branch. But to listen to the speakers, they blasted Washington as if republicans were nowhere to be found.

BENNETT: Republicans are to be found in Washington. And they've been in control of a lot of things. The last two years, of course, the house and senate, since the last election, the house and senate have been controlled by the democrats. I think you will hear John McCain tonight not just go after Barack Obama and Joe Biden. He'll go after the Republican Party, what has been done or not done by republicans. John McCain, after all, I know what they want to do is morph him into George Bush. But he's not. And he's had a lot of fights in this party, within this party, you're going to hear some of that night.

BLITZER: You know James, that's probably the sing the greatest strength that the democrats have is to say, if you liked the last eight years of republican rule in Washington, vote for more republican rule in Washington. They're trying, the democrats, to do that. And score points.

CARVILLE: The most important television clip in this election is John McCain I think in April, saying there was not a single major policy that he and President Bush disagreed on. But we already know, in everything he does, is just more of Bush. So we already know that McCain is not even going to continue the economic policies of President Bush. He's going to accelerate them. We know out of his own mouth, and this is the straight talk express, one thing John McCain doesn't do is say one thing on a television show and something somewhere else. That's the most important clip in this election. If the Obama people don't get that clip up, like Friday morning, which I suspect they will, then something is wrong. But we're going to be hearing more and more of this. Because by the straight talker's own words, he and President Bush agree on everything.

BLITZER: How dangerous is it to take on Sarah Palin directly and go after this woman?

CARVILLE: Well, I don't -- a, I think it's a misquote to "go after this woman." I think it's going to be interesting, as this proceeds, people will ask her questions. Anybody will say, look, she didn't address hardly anything about the economic downturn we have. She'll have plenty of time to have her own late edition at some point. I'm sure she'll be on other shows. We have plenty of time to run through that. But the real thing here is, that this -- the McCain/Palin ticket represents an absolute continuation of the policies of Bush/Cheney. That's the important thing. Voters are not going to be detracted from that. I think the democrats will do a good job of bringing it back to that.

BENNETT: Clearly it's not a continuation, as John McCain has made clear. He's going to differ from the Bush administration in a lot of ways. He already has. Look at the big fight about Donald Rumsfeld and the conduct of the war, look at John McCain on the torture issue. Look at John McCain actually pushing this surge, which the president then accepted. But John McCain had to put it out there. Spending is a huge issue, difference between George Bush and McCain. There's one group that's less popular than George Bush and that's the democratic-led house, and senate.

BLITZER: Do you want to respond to that, James?

CARVILLE: First of all, we do know that what Senator McCain said on "Meet the Press," you know, Governor Palin is a big backup of earmarks, big pusher of the bridge to nowhere, she got $7 million in earmarks for her city of 7,000 people. We figured it was something like $4,000 a person in earmarks in a nation of 300 million people. It got a little problem with fiscal responsibility. Every piece of research shows that democrats are much, much more fiscally responsible than the republicans. The modern republican party is the most fiscally irresponsible party I think in American history.

BENNETT: This will come as news when we get the facts out. This is what the debate ought to be about, what the plans are. I think whatever the economic situation of the country, we are very happy to take on the issue that they're going to be solved by raising taxes.

BLITZER: And the democrats are going to steal this from your hero Ronald Reagan's playbook, are you better off today than you were eight years ago when the republicans took charge. And they have to answer that question presumably. A lot of Americans will say, they don't think they're better off.

BENNETT: Some ways they are, and some ways they aren't. I hope they take the whole playbook. Not just the analysis of the problem, but the solutions Ronald Reagan proposed, too.

CARVILLE: Eight years ago would be the time the last democratic president left office. One of the things I always like to point out is, Larry Bartals, as Secretary Bennett knows, is an excellent professor at the university. There's not a single economic performance metric that republicans are better than democrats. The democrats in the last 50 years have far outstripped the republicans on economic growth, unemployment, deficit, and every other thing. I think that's a pretty interesting point. I think the democrats need to make that.

BENNETT: More professors, even in Princeton, that's not reality necessarily.

BLITZER: All right. Guys, stand by. A crucial night unfolding. Both of you will be with us throughout this important night.

By the way, Barack Obama is getting ready to speak at Lancaster, Pennsylvania. We're going to see what he has to say. You're looking at live pictures right there. It's a key place, the state of Pennsylvania.

And John McCain's running mate, belittling Barack Obama's experience as a community organizer. The democrats are using that to organize a massive new fund-raising effort. And incredibly big numbers, fund-raising coming in for bomb right now since Sarah Palin's speech last night.

And Michelle Obama has been on the receiving end of some republican jabs, including last night here in St. Paul. Will the candidate's wife fire back? She's getting ready to speak in Albuquerque, New Mexico.

Stick around. You'll see what's going on live right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: One attack in govern more Sarah Palin's speech last night, that the Obama campaign is not letting her get away with, and they're going online to let people know about it.

Let's go to our Internet reporter. Abbi Tatton is watching this part of the story.

What is it all about, Abbi?

ABBI TATTON, CNN INTERNET REPORTER: This was one of the biggest applause lines of last night. Take a listen.

(BEGIN VIDEO CLIP)

PALIN: I guess a small-town mayor is sort of like a community organizer. Except that you have actual responsibilities.

(END VIDEO CLIP)

TATTON: Barack Obama's experience as a community organizer, that the campaign says they cannot let lie. Firing off fund-raising e-mail last night to millions of online supporters that read in part, they insulted the very idea that ordinary people have a role to play in our political process. And this comes this week as the Barack Obama campaign launches new online talk aimed at community organizers. A kind of online data base that gives supporters access to voter lists in their neighborhoods, fliers, information so they can go out in their communities and recruit more Obama supporters. An extension of online tools that the Barack Obama campaign used in the primaries that were key to their success. Wolf is this.

BLITZER: Abbi, thank you.

Barack Obama is taking heat for his lack of executive experience. But isn't the republican nominee open to the same criticism. We'll talk about that with the former republican presidential candidate, Rudy Giuliani. He'll be joining us live.

Sarah Palin basking in the spotlight. But it is shining on a painful personal matter that has led to an investigation of her conduct as the governor.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Welcome back to the republican national convention. We're here in St. Paul, Minnesota. They're getting ready to hear later tonight from Senator McCain, his acceptance speech. That's coming up. We want to hear what the Obama campaign thinks about what happened here, especially what happened last night.

Joining us is Robert Gibbs. He's a senior adviser to the Obama campaign.

Robert, thanks very much for joining us.

ROBERT GIBBS, SENIOR OBAMA ADVISER: Thanks for having me, Wolf. How are you?

BLITZER: Good. John King and Gloria Borger are here as well. They'll join me in the questioning. I'm going to play this clip from I want to play this clip from Governor Palin last night and get your response. Listen to this mocking, if you will, of Senator Obama.

(BEGIN VIDEO CLIP)

PALIN: I guess a small town mayor is sort of like a community organizer except that you have actual responsibilities.

(END VIDEO CLIP)

BLITZER: All right. We heard the mocking of his decision to become a community organizer after he left college and law school. I want you to react.

GIBBS: Well, let me tell you what brought Obama to Chicago to work in the community. That was the closure of many steel plants and the laying off of many steelworkers. What Barack Obama did was help set up job training programs to get steelworkers back on their feet, get them good jobs and help them provide for their families.

Am I surprised a ticket led by John McCain, that's out of touch with the pains in real America is making fun of Barack Obama trying to help people get better jobs and back up on their feet? I'm not surprised about that. I think most people in Middle America are probably a little surprised about that. But I'm not surprised by John McCain.

BLITZER: Here's another criticism she leveled at Senator Obama. I'll play this clip.

(BEGIN VIDEO CLIP)

PALIN: I might add that in small towns, we don't quite know what to make of a candidate who lavishes praise on working people when they're listening and then talks about how bitterly they cling to their religion and guns when those people aren't listening.

(END VIDEO CLIP)

BLITZER: All right. Go ahead, Robert. Tell us what you think.

GIBBS: Well, look, you know what you're not playing, Wolf, of any clips about what governor Palin or John McCain are going to do to help manufacturing jobs leaving small town America, health care small town America can't afford, how far to send their kids college but they also can't afford that. I assume at some point this convention will get around to talking about what John McCain wants to do for this country. We certainly haven't heard it yet and I'm not sure we're going to hear it tonight. We know John McCain voted for George Bush 90 percent of the time. We'll see if that's more of the same tonight.

JOHN KING, CNN CORRESPONDENT: Robert, what Senator McCain does speak tonight, we're told he's going to differentiate himself from George W. Bush on several issues. That he is -- has had a agreement with climate change and what he calls wasteful spending. And he will make the case that he disagreed with President Bush early on for criticizing troop levels on Iraq. On those specific questions, do you concede on those three specific issues, John McCain has the credibility to say -- and they're pretty significant issues -- he was not with president Bush?

GIBBS: Look, I'll let John McCain phrase the campaign that he wants to run. Again, he voted with George W. Bush 90 percent of the time. John McCain and George Bush agree that this economy is fundamentally strong. I don't think most people out of work or watching their next dip think this economy is fundamentally strong. And, look, I think we can get into talking about wasteful spending. John McCain has watched the deficit balloon and balloon. Are we going to watch John McCain dance on the head of a pin and tell us he's a lot different than George Bush. But 90 percent of the time John McCain agreed with George Bush. I'm not sure how you can convince the American people you're a maverick or for change when you thought George Bush was right 90 percent of the time.

GLORIA BORGER, CNN CORRESPONDENT: Robert, he's also had a lot more experience than Barack Obama in stepping across the aisle and working with democrats on issues like immigration.

GIBBS: I wouldn't agree with that, Gloria.

BORGER: And ethics reform.

GIBBS: You know what, Gloria? Sure, an interesting story. Barack Obama worked with John McCain stepping across the aisle to work on immigration reform. I think I would tell you that Barack Obama had a bigger hand in lobbying and ethics reform and curtailing the reach of special interests in Washington last year than anybody else did. We're happy for that record of working across party lines. That's what Barack Obama's record has been in the state senate and the United States senate. That's real change people can believe in this country, not more of the same.

BLITZER: Robert Gibbs, we've got to leave it right there. Thanks very much for joining us.

GIBBS: Thanks guys.

BLITZER: Thank you.

We'll get a different perspective. The former mayor of New York, Rudy Giuliani is standing by to join us live coming up.

JEANNE MOOS, CNN CORRESPONDENT: You could say Sarah Palin went nuclear against the opposition. At least she got the actual word right. The funny thing is what some eagle eyes spotted on her teleprompter and what the republicans inadvertently left in when they handed out copies of her speech to the press.

PALIN: Terrorist states are seeking nuclear weapons.

MOOS: A little phonetic guide to make sure Sarah Palin doesn't pull a George Bush.

PRES. GEORGE BUSH, UNITED STATES: Covert, nuclear weapons programs.

MOOS: Since it was a former speech writer for George Bush who wrote much of Palin's speech, it's no wonder he added the tip.

The good news is that she didn't say new clear. Although that sounds safer than going nuclear.

I'm Jeanne Moos, CNN, New York.

(COMMERCIAL BREAK) BLITZER: Let's go right to Jack with the Cafferty file.

Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question is how important is it that Iowa, 95 percent white state remains firmly behind Barack Obama.

Sophia writes, "Very important. Evidence the country is not as bigoted as the right wing of the Republican Party believes it to be. You need look no farther than the color of the faces that make up the delegations to the republican national convention."

Daren in Ohio, "I saw a man of character, not a man of color. Can the rest of the nation rise to that challenge? Contrary to what most people say, that is a test of racism. Until most people say they're not racist when their daughter comes home with someone with dark skin. We'll see if they're capable of voting for someone the most qualified. They've shown no real plans of solutions. If Obama loses it will be an indication we're not there. Yet."

Brandon writes, "Iowa is 95% white but it's also a farm state where a lot of towns were on the verge of becoming ghost towns that were suddenly reawakened bite ethanol boom. John McCain has a long history of issues important to farmers and ethanol. It's not a shock to find out he's not popular here."

Jennifer writes from Arizona, "It's vitally important Iowa backs Obama. However, I feel a lot of polls are different and people react differently inside the voting booth.